JA Solar Bleeds, Trims Outlook - Analyst Blog

JA Solar Holdings Co. Ltd. (JASO) announced a loss per American Depositary Share (EPADS) of 36 cents in its third quarter of 2011, which came way below the Zacks Consensus Estimate of a 2-cent loss. In the year-ago quarter the company clocked earnings per ADS of 50 cents.

Quarterly Performance

JA Solar’s revenues in the reported quarter were $388 million, ahead of the Zacks Consensus Estimate of $378 million. However revenues fell 7.3% compared to $418.5 million in the second quarter of 2011 and a decrease of 31.6% from $567.4 million reported in the third quarter of 2010.

In the reported quarter JA Solar’s total shipments were 445MW, compared with shipments of 401 MW in the second quarter of 2011, representing a sequential increase of 11.0%. However year-over-year shipments grew 6.5% from 418MW.

JA Solar’s gross loss in the third quarter of 2011 was $16.6 million, compared with a gross loss of $11.3 million in the second quarter of 2011 and gross profit of $127.9 million in the third quarter of 2010.

Total operating expenses in the third quarter of 2011 were $26.7 million, compared with $20.4 million in the second quarter of 2011 and $23.0 million in the third quarter of 2010. Total operating expenses represented 6.9% of net revenue in the third quarter of 2011, compared with 4.9% in the second quarter of 2011 and 4.1% in the third quarter of 2010.

Operating loss in the third quarter of 2011 was $43.3 million, compared with an operating loss of $31.7 million in the second quarter of 2011 and operating income of $104.9 million in the third quarter of 2010. Overall the company recorded a net loss of $58.95 million, versus net income of $82 million in the year-ago quarter.

Financial Condition

JA Solar at the end of the reported quarter had cash and cash equivalents of $506.5 million, and total working capital of $734.9 million. Total long term and short term borrowings were $703.9 million and the face value of outstanding convertible bonds due 2013 was $228.2 million at September 30, 2011.

Outlook

Looking forward, JA Solar expects third quarterly solar cell and module shipments in the range of approximately 310 MW–330 MW. However, faced with subsidy cutbacks in key markets like Germany and Italy, the company trimmed its fiscal 2011 shipment outlook to 1.6 GW from the earlier forecast of 1.8 GW.

Thus we currently have a long-term ‘Underperform’ recommendation on JA Solar. In the near-term however, apprehensions over the tepid module demand in Europe, rising competition, wafer dependency, financial stability of its customers and oversupply of solar cells in the market will restrain the valuation of the company. Thus, for the short-term in line with its peer China Sunergy Co. Ltd. (CSUN); we assign a Zacks #4 Rank, (Sell rating) to the stock.